Tech Titans Form Patent Trust

With hopes of patent reform fading in Congress, major IT firms look to beat trolls by outbidding them.

With efforts at patent reform stymied in the U.S. Senate, the nation's leading technology companies have formed a unique trust to buy valuable intellectual properties as a protective first strike against so-called patent trolls.

The leading members of the trust include Cisco, Google, Hewlett-Packard, Motorola, Sun Microsystems, Ericsson and Verizon Communications, according to a June 29 Wall Street Journal article. Each member pays approximately $250,000 to join Allied Security Trust I and places $5 million in escrow to purchase patents.

Also known as patent holding companies, trolls acquire patents for the purpose of initiating litigation against technology companies in hopes of forcing expensive settlements. Patent holding companies produce no products or services using their patents.

"The trust was formed in reaction to a marked increase in patent assertions and litigation involving high-tech companies by patent holding companies," stated the trust's Web site. "The trust provides opportunities to enhance companies' freedom to sell products by sharing the cost of patent licenses."

The tech industry once held high hopes the 110th Congress would pass significant patent reform, reducing the increasingly high cost of litigation engulfing IT companies due to patent disputes.

In September, the House approved a bill hailed as the first significant overhaul of patent law in half a century. Approved on a 225-175 vote that crossed party lines, the Patent Reform Act of 2007 (H.R. 1908) narrows the definition of willful infringement and limits infringement damage awards to the actual value of the technology involved instead of the overall value of a completed product.

The bill also creates a "second window" in which to challenge patents issued by the Patent and Trademark Office. In addition, the legislation would create a first-inventor-to-file system to replace the current first-to-invent standard, moving the United States closer to international patent standards.

Led by large pharmaceutical and manufacturing interests, the bill has all but died in the U.S. Senate.

According to the Allied Security Trust, it costs operating companies "an average of $3.2 million through the end of discovery and $5.2 million through trial to defend these cases when there is more than $25 million at stake. Even a small claim is highly disruptive and requires significant time and legal costs to defend."